Environment and corporate culture are areas of great interest in the 21st century as business enterprises, both small and large scale, strive to maximize their profits and minimize loses. For a company to be regarded as a major player in various industries within the multifaceted nature of the business world, it must reckon with various factors within the environment that it operates. In addition considerations should be given to how this external factors act on one of the most important tenets of a company: its culture. These factors, as discussed world over, include political, economic, social, technological, ecological and legal forces that act upon a company in the environment within which it operates. In order to study the forces of PESTEL and their effect on corporate culture, this paper will carry out a thorough analysis side by side with tacit examples. The example will include leading business establishment in various industries.
Political environment include forces from politics within the environment that the business operates in. In the modern societies, the political class has sharpened its campaign strategies and other political machinations aimed at ensuring they cling to political offices and power. In America for instance, some business enterprises have become so powerful, due to their flawless customer base, such that they are able to influence their consumers to vote in a certain way in elections. The ever tumultuous nature of politics may have both negative and positive effects to a business. It is therefore imperative that a business organization studies the politics in the nation states they operate to ensure that political wars do not infiltrate into their business operations and that political transitions from one regime to the next do not in any way affect a business negatively.
A good example for studying how political factors shape a company can be drawn from the financial industry. The financial services sector is a rather unique field in the finance and Investments industry. One of the major players in the industry is the Citigroup, which is regarded as one of the major players in the industry. The history of Citigroup has been traced to the founding of five banks namely the Citibank in 1812, the Bank Handlowy in 1870, the Smith Barney 1873, the Banamex 1884 and lastly the Salomon Brothers in 1910 (Citigroup Website, 2010).
The Citigroup being one of the largest contributors to the campaign machinery in the USA contributed to the political causes of the country for a long time. It has been heavily influenced by the political environment given that it has severally donated to the campaign machinery of many candidates. For example in 2009, the group was involved in political issues when Holt was appointed to advice on the relationship between the group and the US authorities (Strategic Analysis). It has severally influenced the authorities in shaping the future of the industry.
The economic environment in the 21st century has become very unpredictable for business organizations. Of great concern has been the need to mitigate effects of price control, foreign exchange rates and forces of devaluation of currencies. Devaluation of currencies, which incorporates the marking of various nation-state currency values with those of developed nations, has been an area of concern for multinational corporations. Again, business capital and the ability to raise adequate revenue for newer markets have acted as forces within the economic environment of business organizations.
In our example, the financial services sector is very turbulent with interest rates being the key determinant of profitability. As the rates fall, the customers are able to borrow more given the low cost of borrowing. The interest rates in the market have been very low since 2004 and therefore Citigroup has suffered heavy losses and operating costs since then. Although the U.S. Federal Reserve's Open Market Committee lowered the rates in response to the global financial crisis, many players in the industry have had a difficult trading period.
The industry has suffered from a slowdown in the housing market which extended to mortgage lenders. Although the industry faced increased popularity in mid 2000, the popularity has decreased over time thereby affecting companies like the Citigroup. The property value has been falling decreasing the absolute spending in the market and subsequently the borrowing rate of the consumers. This implies that the risk has increased posing an economic challenge to the Citigroup. The firm is regarded as a global brand operating a wide portfolio of financial services in a holding capacity. This has been made possible by the wide clientele base of over 200 million customers spread all over the world in an approximated 150 countries. It has two business segments the Citicorp which operates as regional consumer banking and the Business wing.
Businesses are greatly affected by social factors within the environments they operate. Since every business targets consumers, it is great affected, both positively and negatively, by the social trends of its customers. Customers are dynamic but behave in more unified manner in terms of preferences, tastes and perceptions. There are other issues different from the traditional supply of goods and services that customers expected a company to address. In fact, it is the expectations of the modern societies that have forced business and organizations to introduce strategies aimed at showing the society that there is more to their commercial interests.
The aspect of CSR (corporate social responsibility) has shaped the culture of many companies and they strive to participate. It is believed that the more a company takes part in CSR the more the society indentifies with it and the more its consumer base if expected o grow. Companies that do not engage in corporate social responsibility maybe due to their rigid policies and so on are increasingly worried of their future. Many, especially those venturing in markets within the less developed countries like in Africa and Asia have participated in construction of schools, offering scholarship; participate in war against hunger and poverty and other ills affecting people in these areas.
The technological advancements that have characterized the world today have not spared the health care industry. As we approach the 21st century, technology has produced applications that are more sophisticated. One of these applications is the internet. The internet has influenced the modern society in several ways. Of most significance has been its influence on education, commerce, communication and interaction and globalization. Whereas many of the influences have been positive, it is worth admitting that this application has adverse negative influence of the 21st century society.
The recent advances in technology and globalization have greatly influenced the financial industry both positively and negatively. Key to this is the innovativeness that has characterized the banking industry with the introduction and growth of the paperless and e-banking (Strategic Analysis).11 The bank has revolutionaries its banking and investment services to adapt to the changing technological environment by using modern reporting and financial analysis tools. The customer service has also been improved to ensure that the customers remain satisfied and loyal to the bank products and services.
As was mentioned earlier in this paper, companies are struggling to take part in the quest for a clean environment. Environmental movements and organization in the world have stepped up the fight against environmental degradation. Environmental politics have gone a step higher with companies not taking in this quest being regarded as anti environmental conservation and thus suffered dearly on its customer base. People and governments alike have resisted vigorously establishment of industries that are perceived as polluting the environment. Companies have therefore been forced to look review their plant and machinery to ensure that it conforms to international environmental standards like the Kyoto protocol and such.
The need to conserve the environment has also informed numerous commercial advertisements with a view to making customers believe that the company produces goods and services that are not only friendly to consumers but also the environment.
Whereas the legal environment of a company appears more as a matter of common sense, there exits and knowledge gap between general definition and the underlying application, in tradition of the modern legal environment. Since many business enterprises have a traditional of engaging in business agreement with each in terms of demergers, mergers and so on, there is always the case of unpredictability associated with any of such business agreement. Any business contractual relationship is prone to events that are unprecedented to all parties in it and that definitely impacts on the general performance and culture of every business company. In the event that these unprecedented issues become too complicated for the business organizations to solve, the courts are sought to provide legal decision. It is, however, good to admit that the legal decision sought by the conflicting parties is subject to vicissitudes of domestic politics and international relations, which like the economic factors, may vary from nation to nation and time and time.
In the financial industry taken as an example, the legal environment is highly regulated and therefore the bank operates on a sound legal backing. It has fully complied with all the legal requirements on banking and investment given the ever changing regulatory requirements (Strategic Analysis). The major regulator in this industry is the U.S. Federal Reserve's Open Market Committee which is the force behind the regulation of interest rates in the market. As stated earlier, the legal environment will change form nation to nation and it therefore upon the business organizations to brace themselves to solve any legal challenges that may come their way.
Environment and the Adaptive Organization Culture
Organizational culture is widely viewed as the set of beliefs and assumptions that a group of people working together. Organizational culture makes the collective behavior of workers predictable in manner that sets apart and makes an organization unique to each other. Organization culture can therefore make or break and organization of any business establishment.
Due to the inevitable nature of the environment within which a business operates, forces of politics, economics, social, ecological and legal aspects of a society will definitely influence the way a company operates. As organizations meet these challenges, there is a need for them to rise to the occasion lest they collapse. As their cultures get threatened, they should ensure that these cultures are designed in an adaptive manner to allow for flexibility. Strong leadership is very essential in order to maintain flexible behaviors and attitudes within the organization. The adaptive culture has an advantage in that it allows for future modifications in case challenges within the business environment sour up. Many organizations perceive change as both and opportunity and a threat to the survival of the organization. Both the management and staff must embrace the need to be creative, innovative, less bureaucratic and not easily thrown off balance by change. This is easier said than done but there are key measures that must be put in place to make an organization's culture more flexible and ultimately adaptive.
In adaptive culture, an organization is empowered to cushion itself from challenges posed by political temperatures in the environment they operate. Structures must be flexible in order to conform with new government policies. An adaptive culture will go along way in ensuring that changes in political leadership does not put an organizations relationship with the new government in jeopardy. It is the duty of the management to ensure that an organization participates in corporate social responsibility. There is need to care for employees in order to maximize productivity.
Legal tussle within the business environment are rife since many organizations have rigid channels and procedures of handling complaints and breaches. In adaptive culture, management is allowed discretion to decide and make early mitigation choices to avoid legal tussles.